Thursday, July 23, 2009

Gary North, "The Great Default Is Coming"

"The Great Default Is Coming"

by Gary North

"TRUST US:" The government promises to pay off holders of Treasury debt. The government's debt has a AAA rating. Note: So did lots of subprime mortgages. The government sells its debt as a way to keep from having to raise taxes to pay for government programs.Who pays for these programs? Taxpayers and buyers of Treasury debt.When are these costs imposed? Today.What has been transferred to Treasury debt investors? A promise to pay dollars in the future. Not dollars of constant purchasing power. Just dollars.Question: "What is the difference between a cashed Social Security check and a crashed warplane?" Answer: "The plane does not vote."Do present costs get transferred to future taxpayers? No; they are paid for by present taxpayers and investors.Then what do present investors receive? IOU's. Lots and lots of IOU's. Issued by whom? Congress.As the Mogambo Guru would say, "hahahahaha."

Let's get this straight. We are not transferring present costs to future generations. We are pressuring Congress to write present IOU's for future repayment. We are transferring present costs to present investors in IOU's issued by Congress. As to whether any future generation decides to pay off these IOU's is up to them. But if you look at a chart of the IOU's in relation to present tax revenues, it seems a bit far-fetched to imagine the future taxpayers will pay off these debts. After all, we aren't. Congress runs an official $1.8 trillion on-budget annual deficit, this sends a message: "We prefer that investors pay today's costs." Why should this change?

It will not change. What will change is the willingness of investors to pay for today's costs in exchange for low-interest IOU's.

IOU'S OF OUR FATHERS: In Clint Eastwood's movie, "Flags of Our Fathers," there is a scene that stands out as one of the most illuminating scenes in the history of America's movies on World War II. The three surviving military personnel who were in the second Iwo Jima flag-rasing photo – the rigged one – are stateside. They are skeptical about their role as heroes. They don't see that they did anything special. The Marines' press secretary informs them that they are there to sell war bonds. This seventh war bond drive was expected to fail before the flag photo captured Americans' hearts. He did not say, "If we can't sell bonds to the public, the Federal Reserve System will be the only buyer, and it will have to create the money out of nothing, which will produce shortages, because of higher prices in the black market," but that was the implication. The patriotism aspect of buying bonds is long gone. Today, the sales pitch is safety.

"Investors will get their money back. The market is liquid. Investors can get their money back at any time. Yes, rates are low. Yes, the Federal Reserve System doubled the monetary base in 2008 to keep alive the bond market. But this market is trustworthy. Price inflation is not a threat." Implied message: it will never be a threat. But if it ever becomes a threat, you can sell your bonds and get your money back.

This means that the IOU's of our fathers, which were never paid off, but were merely rolled over by selling more IOU's, have set the pattern. The patriotism is gone; the market for rolled-over Treasury debt is with us still. When it comes to government debt, the World War II song that most closely matches the market is "Roll Me Over."

CONCLUSION: All costs are present costs. It is only a question of who pays them and why. Anyone who says that we are passing on present costs to future generations does not understand economic cause and effect. We are told that we are using politics to leave a massive debt to our children. Really? Which children? The typical taxpayer? He or she can vote. As soon as this tax burden grows too heavy, the voters will demand that it be reduced. Congress will then sell more debt, just as it always does.

At some point, that debt will not find a market. The great default will then take place. At that point, Congress's IOU's will become IOU Nothings. The Great Default is coming. Count on it."

No comments:

Post a Comment

A Revolutionary Act...

Ad-Free Blog, Forever

"Running"

This blog takes a lot of time and effort. Please help keep this site online. I've done all I could for almost 11 years; if it made a difference in even one life it was all worth it... and, as always, thanks for stopping by! - CP. Questions/comments to CoyotePrime@gmail.com

Thanks for your support!

Why is this blog here?

"Many people need desperately to receive this message: 'I feel and think much as you do, care about many of the things you care about, although most people do not care about them. You are not alone."

- Kurt Vonnegut

"Let me tell you why you're here. You're here because you know something. What you know you can't explain, but you feel it. You've felt it your entire life, that there's something wrong with the world. You don't know what it is, but it's there, like a splinter in your mind, driving you mad. It is this feeling that has brought you to me. Do you know what I'm talking about?"

But remember: "I didn't say it would be easy. I just said it would be the truth." - Morpheus

Search This Blog

Who We're Not

Who you are: the 5%

“Five percent of the people think; ten percent of the people think they think; and the other eighty-five percent would rather die than think.” - Thomas Edison

This blog's not for everyone. That you're here says something great about you! Thanks for stopping by!

Fellow Travelers

Unique Visitors: 2,905,164

Posts Since 8/14/2008: 53,307

Total Pageviews 7,746,288

Follow by Email

Who am I?

Who am I? Ethnically I'm a Choctaw "Native American"/Euro mongrel, currently living midway between Tucson and Phoenix in the desert of Arizonastan. This blog is the result of my daily scavenging for nuggets of truth and soul nourishment wherever they might be found. Here you'll find the very best version of "truth" I can find about the economy and politics, as well as science, human nature and the human experience, literature, music, random observations, comments, poetry, rants, satire and other discoveries from the road to NowHere. Welcome! I'm glad you're here!

How It Really Is

Truth Is Treason

Government truth? LOL

May God Have Mercy...

The Great Seal

Native Pride

The Truth

Truth

Truth

“If any man is able to show me and prove to me that I do not think or act right, I will gladly change, for I seek the truth, by which no man was ever injured. It is only persistence in self delusion and ignorance that does harm.” - Marcus Aurelius

Say What You Mean, Mean What You Say

Facts, Not Opinions

Sheeple, meh...

Second Life

Life's Not Fair...

Stupidity Free Zone

Warning!

The Difference...

Prosecute!

None of this stuff!

Troll Free Zone

Top 100 Blogs

The Daily Reviewer

Fair Use Disclaimer, US Copyright Law

Copyright Disclaimer Under Section 107 of the Copyright Act 1976, allowance is made for "fair use" for purposes such as criticism, comment, news reporting, teaching, scholarship, and research. Fair use is a use permitted by copyright statute that might otherwise be infringing. Non-profit, educational or personal use tips the balance in favor of fair use."This site provides political commentary, education and parody protected by the fair use and My Lai/Zapruder exceptions to copyright law.This blog may contain copyrighted material, the use of which has not always been specifically authorized by the copyright owner. All posts are clearly attributed by name and active link to the original author and website. I am making such material available on a non-profit basis for educational, research and discussion purposes in my efforts to advance understanding of environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. Articles are reproduced in accordance with Section 107 of title 17 of the Copyright Law of the United States relating to fair-use and are for the purposes of criticism, comment, news reporting, teaching, scholarship, and research.I believe this constitutes a 'fair use' of any such copyrighted material as provided for in US Copyright Law, Title 17 U.S.C. Section 107. Consistent with this notice you are welcome to make 'fair use' of anything you find on this web site. However, if you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.More information at http://www.law.cornell.edu/uscode/17/107.shtml.

Contact CoyotePrime-at-gmail.com with complaints, comments.

Red Pill, Blue Pill

"You take the blue pill, the story ends, you wake up in your bed and believe whatever you want to believe. You take the red pill, you stay in Wonderland, and I show you how deep the rabbit hole goes." - Morpheus